Best Strategic Partnership

1997 Editor’s Choice Award
DIRECTV/Digital

In the days just before the launch of DIRECTV in 1992, the founders identified two truths important to their new company’s future. They wanted to focus on their core business of satellite broadcasting, and they could get to market more quickly if they turned the infrastructure over to someone else. Acting on those realizations, they embraced outsourcing as integral part of their business strategy.

“We included the whole infrastructure, computer systems and customer service, down to the printing the bills and remittance of bills,” said Bob Gabrielli, director of customer management systems. “There were parts of the business we didn’t want to do, from the standpoint that there are others who do it and do it better and it takes so long to even build that kind of an infrastructure. We wanted to focus on what the business is, which is satellite broadcasting.”

Enter Digital Equipment Corporation

DIRECTV sent out RFPs for services, including one for the development and operation of a customer billing and care system. Digital Equipment Corporation (Compaq) responded with a proposal that a software vendor not in the Digital family develop software which Digital would then run in one of their customer care facilities. Details of the proposals called for Digital to take on the whole network for billing and customer care, including controlling the network lines to the call centers, credit card companies, and the remittance and mail processing companies.

“We selected Digital for a couple of reasons,” said Gabrielli. “Their value was in line with the rest, and it was a company that could grow with us and wanted to partner with us so that as we grew, they grew. We didn’t have to spend millions and millions of dollars to build a huge system that wasn’t necessary in the first day, week and year. Digital would grow the system as needed.”

Making the Right Moves

The resulting relationship could serve as the poster child for strategic use of outsourcing. Both customer and supplier have gained rich dividends from their association. Gabrielli attributes that success to the pattern of staffing and to the way the two companies interact.

“The Digital people who support us are dedicated to DIRECTV. They don’t work on any other project,” he said. “It’s not a team that’s had a lot of changeover, so I’ve dealt with the same management structure at Digital for over five years.”

The flip side of that coin is that the Digital employees can borrow hardware or software from another project if they need it immediately.

“Plus, they have all these contacts,” said Gabrielli. “Of the 50 people that work with us, there’s probably 500 or 600 years of experience and relationships. If there’s a problem, they can call a friend who may know the answer.”

The stability on the team also has engendered a high degree of communication and trust.

“We’ve had this relationship with Digital for five and a half years,” said Gabrielli. “When you work with the same people for five years, you get to know when they’re having a good day or a bad day. You can call them at home and not feel bad, because they’ve called you at home before. If there’s a problem, you solve the problem first, then worry about getting the right paperwork and approvals later, because you know that other person’s word is good.”

Sailing Through the Squalls

The sailing has not always been smooth. As a new business and the first small direct satellite broadcasting company in the U.S., DIRECTV had to estimate subscriber growth, which formed the basis for estimates on the amount of hardware on which the costs would be figured. Those subscriber estimates were not as accurate as both companies would have wished.

“We had to agree that promises were made by both sides, and that we just didn’t know what we didn’t know,” said Gabrielli. “But we got through that. I think that probably was the turning point where things went to being a very strong relationship.”

The missed projections created a need last year for contract renegotiation, but DIRECTV and Digital went beyond addressing those issues. The actual operation had been a combination effort by Digital and the software vendor. As the system grew, increasing complexity dictated that the software company also become a 24-hour operation. That was creating problems.

“They’re at opposite ends of the scales for hiring and staffing people,” said Gabrielli. “You can’t have somebody who writes code Monday through Friday also be on call on the weekends. So the restructuring of the contract separated the pure operations from the software development, and Digital took on the additional role of application operations.”

As part of the renegotiation, the contract was extended by two years. Gabrielli estimates the value of the contract will be over $100 million, perhaps more if DIRECTV does extremely well.

Both companies foresee a bright future together.

“We haven’t even gotten close to seeing the top,” said Gabrielli. “We expect to continue to grow, and Digital expects to keep adding more hardware and more software and doing the business for us.”